Dealers... Why Is Their Labor So Expensive?

First a disclaimer. This is just my opinion and not a
known fact. There are many variables to consider (type of
dealership, geographic area etc. etc.). I have worked at a new
car multi line dealership (Mazda, Buick and Volkswagon) for the
last 12 years, these comments come from this experience. Your
mileage may vary!

The main reason for a dealership being in business is
to sell new cars. They would not have a franchise from a car
manufacturer if this was not the case. If you sell new cars, you
have to warranty them. That's why dealerships have a service
facility. That "free" warranty you get with a new car,
is why any other non warranty service (customer pay) you have
performed on the car is so expensive.

The dealer will tell you, it's because the technicians
need to be constantly trained on new product, and all the special
tools have to be purchased. This is true, the franchise mandates
these things (you can not do new car warranty without these).
What they do not tell you, is the money they loose doing warranty
repairs is made up by doing maintenances and service to older
cars out of warranty.

Warranty repairs are dictated by the manufacturer
(Mazda in this case). The time that is paid to do a specific
repair is also set by Mazda. They have control over what is
repaired, how long it should take to do the repair, and how much
time they will pay to diagnose the problem (Dealers are paid on a
flat rate basis by Mazda, that means if Mazda say's it will take
.5 of an hour to do a certain job, they get paid .5 of their
hourly service rate).

You have probably heard of book time, that's Chilton or
Motor repair time guides. There is also warranty time. Warranty
times set by Mazda is considerably less than what Chilton or
Motor would allow. For a technician to do eight hours of warranty
time in an eight hour day is very difficult.

The Dealership is usually broken up into three parts.
Sales, service and parts. Each department runs on a budget, and
each department wants to show a profit. Years ago, it was always
new car sales that made the most money for a dealer. Recently,
it's parts and service that makes the money (along with used car
sales).

Most dealer service departments do more warranty work
than regular customer pay work. It is in the dealer's best
interest to get paid as much as they can for the warranty work
they perform. They can not change the amount of time Mazda will
pay them, but they can change how much Mazda will pay, by raising
their labor rate. The more warranty work a dealer does, the more
likely the labor rate is high.

The dealers have also found that customer pay service
is quite profitable. So they compromise on the labor rate they
would like from Mazda, and the rate customers are willing to pay
out of pocket. In the shop I worked at, Mazda would only pay the
same rate we charged the customer (we couldn't charge less for
customer pay, the labor rate had to be the same).

Independent repair shops have the ability to spend
their time on service work, not warranty work. This, tied in with
lower overhead and profit on the parts sold (something a dealer
service department does not get, the parts department gets all
profits from parts sales) allow the independent to charge a more
competitive labor rate.